Jevon’s Paradox and the Rebound Effect
The Jevon Paradox occurs when the efficiency of an energy source improves, lowering the price of the energy source, causing there to be extremely high demands which counteracts any savings or environmental protection intended. An example of the Jevon Paradox can be seen in the EU with the European Green Deal.
Following the 2008 Great Recession, numerous global institutions and forums pledged to enhance wellbeing economics, focusing on happiness, sustainability, and the balance between people, planet, and profit. The European Union launched the Green Deal, similar to the UN’s Sustainable Development Goals (SDG) for Horizon 2030, as part of its political and economic strategy for the 2021–2027 Multiannual Financial Framework. This initiative aims to halt climate change and enhance wellbeing in societies and smart cities by ensuring access to affordable, clean energy. However, it faces a significant challenge: the Jevons Paradox. This paradox suggests that improvements in energy efficiency might actually lead to increased energy consumption, potentially exacerbating climate change and environmental harm.
The effects of the paradox can be seen in the image below.
This chart shows how primary energy consumption in the EU has not changed substantially between 1995 and 2019, despite a fast a fast-paced reduction in energy intensity of the economy, as a result of the Jevon Paradox. The severity of the rebound depends on the price elasticity of demand of the good. Since clean energy is price elastic of demand due to there being may substitutes available, a small reduction in price will cause there to be significantly more quantity demanded. To prevent the Jevon Paradox from occurring, regulations can be set to put limits on resource use or emissions which can help ensure that efficiency gains do not lead to increased overall consumption. This can include strict efficiency standards, resource quotas, or emissions limits for industries and products.
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